THE EFFECT OF INCOME APPROACH AND CORPORATE PROFITABILITY OF LISTED CEMENT FIRMS IN NIGERIA
Abstract
This study investigates the effect of the income approach to fair value measurement on the corporate profitability of listed cement firms in Nigeria. The study was anchored on Agency Theory, the research examines how the significant managerial discretion inherent in this Level 3 valuation method influences key profitability indicators: Return on Capital Employed (ROCE) and Return on Equity (ROE). Utilizing an ex-post-facto research design, secondary financial data from the annual reports of three leading cement firms (Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc) were analyzed over a five-year period. Regression analysis revealed a statistically significant and strong positive effect of the income approach on both ROCE (R = .946, p = 0.015) and ROE (R = .977, p = 0.004). The findings indicate that the forward-looking, cash-flow-based valuation of the income approach substantially enhances the relevance of reported profitability by aligning asset book values with their future income-generating potential. The study concludes that while this approach improves financial statement informativeness in Nigeria’s capital-intensive cement sector, it necessitates stringent internal governance and enhanced regulatory disclosures to mitigate the agency risks associated with managerial judgment in fair value estimation. Consequently, the study recommended that firms adopt formalized valuation policies and that standard-setters provide sectorspecific implementation guidance to ensure consistency and reliability in profitability reporting.
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Published in UNIPORT JOURNAL OF BUSINESS, ACCOUNTING & FINANCE MANAGEMENT
ISSN: 1596-9911
This article appears in our peer-reviewed academic journal
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